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Chinese Growth
Topic Started: 23 Oct 2009, 10:27 AM (344 Views)
Ryan
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China Gains Confidence in Recovery
Wall Street Journal
BEIJING—China's recovery is becoming broader and potentially more sustainable, a shift that could provide better support for a still-fragile global economy. Reinforcing those signs is a change of tone from China's cautious government, which is now becoming more confident in a solid rebound.

Economic data released Thursday showed China's gross domestic product growing by 8.9% from a year earlier in the third quarter, following the 7.9% gain in the second quarter. The expansion in industrial output, the backbone of the manufacturing-heavy economy, accelerated further to 13.9% in September from 12.3% in August.
China's Economy: Back in the Black

Just as important is evidence that improvements in the economy are achieving a momentum that's no longer totally dependent on the government's massive stimulus program. The key shift in the latest quarter: a turnaround in the financial health of Chinese companies.

"Orders are piling up on our end. Now my headache is how to get our production to catch up," said Su Qisen, vice president of Xiangxing Bag & Luggage Group, located in southeastern Fujian province. Export orders started to rebound around June, he said, but Chinese consumers are also proving more willing to spend on the company's purses, suitcases and backpacks. "The domestic sales are doing especially well, especially our own brand," Mr. Su said.

He plans to hire 4,000 to 5,000 more employees in the next few months to work on 10 new assembly lines, up from around 10,000 workers now. To attract workers in an increasingly competitive labor market, Mr. Su said he is also planning to raise wages by 10% to 15%.

That kind of corporate spending on new hires and equipment, if sustained, could help wean China's growth off its reliance on easy bank lending and government stimulus projects.

Chinese officials have been aware of the risks and in recent months regularly warned that the nation's rebound is still fragile. But they now seem prepared to call a firm recovery. "Economic growth has accelerated quarter by quarter…and the improving trend in the recovery has been consolidated," China's State Council said Wednesday.

As the fastest-growing major economy, China has a key role to play in pulling the world out of the deep slump it fell into last year. But its rebound this year has been so quick, and driven by such a huge flood of money from the state-controlled banking system, that many investors have questioned whether the expansion can continue for much longer. The government's strategy has raised widespread worries that loose money could inflate prices of stocks and housing, build up unneeded factories and saddle the economy with bad debts.

One reason for some optimism now is that the profits of Chinese companies have started growing again for the first time since the onset of the crisis. The statistics bureau's survey of large industrial companies shows profits for the three months ended August were up 6.5% from a year earlier, reversing sharp falls since late 2008. And the profits of state-owned enterprises jumped 12% in September from a year earlier, the first increase in 13 months.

"Corporate savings finance a huge proportion of investment in China, so a pickup in profits should feed through into strength in investment," said Mark Williams, an economist with Capital Economics in London. If companies are more profitable, investment spending won't be as tied to continued easy-money policies from the government.

Higher profits could just be the result of cost-cutting, as has been happening in the U.S., so it is significant that the improving bottom line of Chinese companies is being matched by gains in the top line: Overall revenues are also picking up.

The government surveys of companies show revenues rising by just over 5% in the past few months, reversing steady declines since the end of 2008.

Foreign companies with operations in China are also seeing a boost. A.O. Smith Corp. of Milwaukee, reported its water-heater sales in China grew 35% in the third quarter, even as its total sales shrank 10%. Coca-Cola Co. said this week that sales volume in the third quarter was up 15% in China, but down 4% in North America.

Intel Corp.'s Chief Executive Paul Otellini this week credited China with helping to bring the company through the downturn. "Thank God for China. They bouyed, certainly our company, through the depths of this thing," Mr. Otellini said in an interview.

The improvement has come even as the Chinese government has quietly dialed back the boost it is delivering to the economy. New bank lending in the third quarter was less than half the second-quarter total, and growth in government spending has also slowed. That could help ease widespread worries among policymakers and investors that the stimulus risked fueling new bubbles and adding to already-alarming overcapacity in industries such as steel and cement.

World trade has also started growing again in the last few months, helping solidify China's recovery. The nation's exports were up to $325.07 billion in the third quarter from $276.10 billion in the second quarter. While still down by 20% or so from their levels last year, the flow of export orders helps keep factories running and workers employed in the nation's massive manufacturing sector.

There's much debate over how quickly trade can recover from here, given the weakened state of Western economies. But many analysts are saying the U.S. recession has likely already ended. With China now on track to easily surpass its target of 8% growth this year, the government's stimulus plan looks to have achieved its goal of carrying the country through the worst of the global downturn.

Government officials say they would still like to see more strength in private-sector investment, which has lagged spending from the state sector. But with surveys of business confidence now recovering to pre-crisis levels, prospects for corporate spending look better. "If demand growth is strong, and profitability is improving, there is no reason for private investors not to invest," said Sun Mingchun, China economist for Nomura.

The recovery in the property sector—which depends on the confidence of homebuyers and private developers—has been key to China's turnaround. Housing sales have been picking up since early this year, but new construction has finally started to kick in a significant way. Construction starts surged 26% from a year earlier in the third quarter after shrinking 5.7% in the second quarter.

That helps fuel not just demand for construction materials, but also for appliances and furnishings to fit out those new buildings. "Since May this year, the number of orders we get has gradually returned to the level in the first half of last year," said Zhou Gaohua, who runs a business supplying wooden doors and cabinets in Beijing. Orders for doors went to a low of 60 to 70 a day earlier this year but are now back to 200 to 300 a day.
—Ellen Zhu and Sue Feng contributed to this article.

Write to Andrew Batson at andrew.batson@wsj.com

Source

Well it looks like "decoupling" has occurred. When the U.S. catches a cold, the world does not catch pneumonia - they get a hiccup and then revitalize themselves. You see, China is one of the few countries still left in the world that actually produces...now they only need to realize they can consume what they produce instead of selling it overseas to broke U.S. consumers.
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Alexander L. Roosevelt
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Well, China has always managed to keep an economy independant of the shakes and shivers of the rest of the world. (One country the world does not make, and while I agree the U.S. Economy is no longer predominant, it used to be, and that line did use to hold. Yours doesn't quite work yet)

The ability to ruthless impose state control with no regard to rights or morals certainly helps as well.
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Benthamus
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The Chinese economy is still rather dependent on the developed world to continue being consumers. If we all stopped consumer the Chinese would have no one to produce for unless of course they establish a larger consumer middle class in their own nation.
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Maxwell Wilder
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I for one welcome our new Beijing overlords! :O



Anyway, in the scheme of things, it's about time the far eastern countries got their chance at a failed empire over the world. :drevil:
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Benthamus
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A chance at a failed empire over the world? The Mongolian Empire anyone?
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Alexander L. Roosevelt
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Benthamus
25 Oct 2009, 05:58 AM
A chance at a failed empire over the world? The Mongolian Empire anyone?
Calling what the Mongolians had an 'empire' is giving it too much credit.
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Maxwell Wilder
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Benthamus
25 Oct 2009, 05:58 AM
A chance at a failed empire over the world? The Mongolian Empire anyone?
Mongols =/= China
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Benthamus
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1. They still had some control over a vast portion of it.
2. You never said China. You said far eastern countries. The only mention of China is in the youtube video.
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Maxwell Wilder
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The title of the thread give any hints away, maybe? :naughty:

And so? Romans had vast control over much of Europe, doesn't mean the rest of Europe didn't have their various chances at creating failed empires.
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Ryan
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Benthamus
24 Oct 2009, 10:00 PM
The Chinese economy is still rather dependent on the developed world to continue being consumers. If we all stopped consumer the Chinese would have no one to produce for unless of course they establish a larger consumer middle class in their own nation.
Alright, by that logic, imagine this scenario:*

There are three Asians and an American trapped on a desert island. They decide that they need to divide up the tasks so that they can all survive. One Asian is given the job of fishing. One Asian is given the job of hunting for firewood. One Asian is given the job of cooking the food. The American is given the job of eating the food.

So all day the Asians sweat and toil so that the American can eat and get fat. Now, surely many will say that the American is the foundation of this island economy, without him, the Asians would have nothing to do.

But this, of course, is utterly fallacious. It's the Asians who are actually producing something, the American contributes nothing - in fact he is a parasite who destroys wealth. The Asians could raise their own standard of living if they stopped producing just for the American, they could produce consumer goods for themselves, and begin capital formation to raise their own standard of living to well beyond what it currently is.


That's what's happening in the world today. Once the Asian countries realize that they would be much better off not exporting all of their consumer goods, not only will our economy implode, but theirs will explode. Especially after they dump the dollar.

* My gratitude to Peter Schiff.
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